In this paper we try to analyse market efficiency during the Seleucid and Parthian era in the Babylonian Empire. We find that prices in Babylon were less correlated with those in Rome than of most other regions around the Mediterranean. This suggests that Rome was indeed the urban centre of the Roman Empire and it also suggests that extensive trade (and/or tribute) relations existed around the Mediterranean Sea. Babylon, however, was located far away from direct sea or land trade routes. In addition, it produced largely barley (because of salinization of the soil) which was the less preferred grain around the Mediterranean. The price in Babylon remained relatively low, however, because of its productive agriculture and because barley has less nutritional value per litre than wheat.
This lack of trade meant that markets were more sensitive to external shocks. Markets could not cope with external supply or demand shocks by means of imports (or exports). This increased volatility, as described by Persson, means less efficient markets. Indeed, we find that coefficient of variance of prices of staple crops was higher in Babylon than elsewhere, indicating less efficient markets. In addition, after a price shock, prices take a long to converge to their normal values. We find that for both barley and dates the expected average duration of a deviation of the price was considerable, varying between 9.5 months and 3.5 years. This suggest that often there may be autocorrelation, that is that bad harvest in year t may lead to a bad harvest in year t+1 because of lack of storage and lack of seed.[1] Equally, recovery to normal prices seems largely to take place during a harvest instead of in between harvests. Hence, the relatively long duration of high prices and the lack of recovery in between harvests suggest the absence of substantial imports. Quick recovery was possible, though, and this must be related then to the fertility of the land, which allowed abundant harvests, and not to imports from afar. On occasion relief could be effected by short distance trade (e.g. from Uruk or the Diyala region) if famine was caused by a very local problem which only affected the city of Babylon and its close environment.